The International Organization of Securities Commissions today published its report on the Second Review of the Implementation of IOSCO’s Principles for Financial Benchmarks by Administrators of EURIBOR, LIBOR and TIBOR.
The report sets out the findings of the second review of the implementation of IOSCO’s Principles for Financial Benchmarks by the administrators of the benchmarks collectively known as the IBORs: the Euro Inter-Bank Offer Rate (EURIBOR); the London Inter-Bank Offer Rate (LIBOR); and the Tokyo Inter-Bank Offer Rate (TIBOR). It was prepared by a Review Team, constituting members of the IOSCO Board-level Task Force on Financial Market Benchmarks and the IOSCO Assessment Committee.
The report is a follow-up to IOSCO’s first review, which was published in July 2014 and contained remedial recommendations for the three administrators intended to strengthen their implementation of the Financial Benchmark Principles. The 19 Principles were published in July 2013 with a view to be implemented by benchmark administrators and submitters and to promote the reliability of benchmark determinations. The Second Review sets out the IOSCO findings into the direction of travel taken by the administrators towards implementing the recommendations of the first review.
The second review found that all three administrators have been proactively engaged in addressing the issues raised by the first review, which had found an important distinction between the progress made on implementing the Principles related to the quality of the benchmark and that on implementing the Principles related to governance, transparency and accountability.
In regard to the Principles on governance, transparency and accountability, the second review found that a majority of the recommendations made by the first review had been implemented by the administrators. The review saw evidence that all the administrators had developed and improved their policies and procedures in a number of areas including conflicts of interest, consultation with stakeholders and internal oversight.
In regard to the Principles related to the quality of the benchmark, the second review found that all three administrators are in the process of conducting work to evolve the three benchmarks to further anchor them in transactions. IOSCO notes that the most part of this work is at the stage of planning and consulting and the level of implementation of the relevant Principles will depend on the outcome of the planned work, rather than the plans themselves. Administrators are encouraged to ensure that the outcomes of their plans are in line with the Principles. Furthermore, implementation of Principles relating to the quality of benchmark should not be seen as a one-off process and Principles such as benchmark design must continue to be responsive to changes in methodology and the market for the underlying interest.
The second review makes recommendations for each administrator aimed at strengthening the implementation of the Principles. As the majority of the recommendations from the first review have been implemented or are subject to on-going work related to the evolution of the benchmarks, IOSCO does not recommend a follow up review. Relevant national authorities are expected to monitor the progress made by the three administrators to implement the recommendations of the second review.
David Lawton, of the UK Financial Conduct Authority and Chair of the Task Force on Financial Markets Benchmarks, said: “We welcome the significant work done in response to the recommendations of the last IOSCO review. This second Report coincides with consultations on plans for further evolution of major interest rate benchmarks such as Euribor, Libor and Tibor. We look to administrators to ensure that the outcomes of these plans are in line with the expectations of the IOSCO Principles.”
Steven Bardy, of the Australian Securities and Investments Commission and Chair of the Assessment Committee, said: "Reviews of implementation, like this one, provide very useful information to the relevant administrators, the users of their Benchmarks, and to the market more generally, about the progress being made in improving governance, quality and accountability in Benchmark setting. Implementation monitoring has now become a key part of what IOSCO does and is of great value to all of our stakeholders".
